No matter how much you earn, you can still land deep in to debt. With credit cards, online shopping, and free delivery it can get hard to control your spending. Whatever you think of, is only a press of a button away. Quite magical; I might say; only if it was free!!
Research shows that many Americans are struggling to meet ends meet. Unlike cash, the use of credit/debit cards made it harder to track how much you spend during the day, and definitely make it harder to keep track of your total spending. Using a budget can help minimize excess spending and keep you on track for a solid financial future!
Budgets Can Be Simple
A budget is simply a clear plan to help you decide how you really want to spend your money, given your goals and how much you earn per month. Even if it is just “I make X amount per month, expenses are X amount per month, and I have X amount left over for Y”. Making some sort of plan is better than nothing. So here are a few steps to help.
Simple Steps to a Good Budget
1. Set your Goals
Decide why you need to make this budget. Are you in debt and need to pay it off in a timely manner? Or maybe you want to start saving money aside for a future plan? Or just doing this exercise to know how you are doing with money?
It’s Your Money…. So take control! You make your reasons and set your own goals.
2. Stop and Think
Yep, wait… No matter how much you need to start this budget, you need to take time to plan it. Your plan must be realistic and feasible. Start by looking at your monthly payments and analyzing your spending. How much do you pay on housing, food, shopping and entertainment? Write down your spending, in detail, for a whole month, preferably two. This will help you understand your own personal spending trends… trust me you will be surprised!!
TIP: Most banks provide online analysis of your credit/Debit card spending by percentage, showing your percentage spending on each category … grocery, gas, dining out, and shopping, etc.
3. Let’s get started
You can either start by drawing a table with two columns: Money In and Money Out.
Or you can simply fill in Money Munchkid’s free ready-made budget sheet and skip to step 4
Money In: this is your income, how much you end up earning in total every month from all sources of income after tax
Money Out: this is your spending, your total monthly spending whether fixed or variable.
Fixed spending is something you have no control over, you can’t reduce it instantly i.e. rent/mortgage, etc. All monthly expenses you are committed to pay in a timely manner for a period of time as per a signed contract.
Variable spending is the expenses you have control over and thus can reduce, Like food and entertainment, you can easily choose to eat less expensive food, or eat out fewer times a week or see a movie only once a month, depending on how much you are currently spending on those and how much you need to save you can make these informed decisions.
4. Take Action
Now solve a simple math problem: look at your total Money In and takeaway (as your kids might say) your total Money Out. The result is what you’ve got left to work with.
If the result is a positive number, well done! You’ve got some money for your savings! Question is: do you think it is enough to fulfill your goals?
If the result is zero or negative, you need to start taking action NOW.
To increase your savings you need to examine all categories of your spending and prioritize. Which category can you stop spending on or reduce? Can you cut the gym membership and take a morning run in your neighborhood instead? Can you quit/reduce dining out?
TIP: If the gap is so wide that the ends are not meeting at all, you need to consider long term plans like moving to a place with cheaper rent as well as finding ways to increase your income i.e. a second job or a side business.
5. Track your progress
Keep track of your performance against the planned budget and keep tweaking your spending until you reach your set goals. Once you achieve your goals, don’t stop there, set your next financial goals.
6. Make it a habit
Make keeping a budget a habit! Always stay on top of your payments and teach your kids those concepts too. The earlier they learn the more likely they are to become successful at keeping track of their own money and staying out of debt!
Online Experience Engineer
Yousra joined Money Munchkids as our Online Experience Engineer in December of 2017.
You can find more of her work at: http://www.ybresume.com